Have You Ever Tried to Sell a Diamond?

The most serious threat to De Beers is yet another source of diamonds that it does not control—a source so far untapped. Since Cecil Rhodes and the group of European bankers assembled the components of the diamond invention at the end of the nineteenth century, managers of the diamond cartel have shared a common nightmare—that a giant new source of diamonds would be discovered outside their purview. Sir Ernest Oppenheimer, using all the colonial connections of the British Empire, succeeded in weaving the later discoveries of diamonds in Africa into the fabric of the cartel; Harry Oppenheimer managed to negotiate a secret agreement that effectively brought the Soviet Union into the cartel. However, these brilliant efforts did not end the nightmare. In the late 1970s, vast deposits of diamonds were discovered in the Argyle region of Western Australia, near the town of Kimberley (coincidentally named after Kimberley, South Africa). Test drillings last year indicated that these pipe mines could produce up to 50 million carats of diamonds a year—more than the entire production of the De Beers cartel in 1981. Although only a small percentage of these diamonds are of gem quality, the total number produced would still be sufficient to change the world geography of diamonds. Either this 50 million carats would be brought under control or the diamond invention would be destroyed.

De Beers rapidly moved to get a stranglehold on the Australian diamonds. It
began by acquiring a small, indirect interest in Conzinc Riotinto of Australia,
Ltd. (CRA), the company that controlled most of the mining rights. In 1980, it
offered a secret deal to CRA through which it would market the total output of
Australian production. This agreement might have ended the Australian threat if
Northern Mining Corporation, a minority partner in the venture, had accepted
the deal. Instead, Northern Mining leaked the terms of the deal to a leading
Australian newspaper, which reported that De Beers planned to pay the
Australian consortium 80 percent less than the existing market price for the
diamonds. This led to a furor in Australia. The opposition Labour Party charged
not only that De Beers was seeking to cheat Australians out of the true value
of the diamonds but that the deal with De Beers would support the policy of
apartheid in South Africa. It demanded that the government impose export
controls on the diamonds rather than allow them to be controlled by a South
African corporation. Prime Minister Malcolm Fraser, faced with a storm of
public protest, said that he saw no advantage in "arrangements in which
Australian diamond discoveries only serve to strengthen a South African
monopoly." He left the final decision on marketing, however, to the Western
Australia state government and the mining companies, which may or may not
decide to make an arrangement with De Beers.

De Beers also faces a crumbling empire in Zaire. Sir Ernest Oppenheimer had
concluded, more than fifty years ago, that control over the diamond mines in
Zaire (then called the Belgian Congo) was the key to the cartel's control of
world production. De Beers, together with its Belgian partners, had instituted
mining and sorting procedures that would maximize the production of industrial
(rather than gem) diamonds. Since there was no other ready customer for the
enormous quantities of industrial diamonds the Zairian mines produced, De Beers
remained their only outlet. In June of last year, however, President Mobuto
abruptly announced that his country's exclusive contract with a De Beers
subsidiary would not be renewed. Mobuto was reportedly influenced by offers he received for Zaire's diamond production from both Indian and American
manufacturers. According to one New York diamond dealer, "Mobuto simply wants a
more lucrative deal." Whatever his motives, the sudden withdrawal of Zaire from
the cartel further undercuts the stability of the diamond market. With
increasing pressure for the independence of Namibia, and a less friendly
government in neighboring Botswana, De Beers's days of control in black Africa
seem numbered.

Even in the midst of this crisis, De Beers's executives in London have been
maneuvering to save the diamond invention by buying up loose diamonds. The
inventory of diamonds in De Beers's vault has swollen to a value of over a
billion dollars—twice the value of the 1979 inventory. To rekindle the demand for diamonds, De Beers recently launched a new multimillion-dollar advertising campaign (including $400,000 for television advertisements during the British royal wedding in July), yet it can be expected to buy only a few years of time for the cartel. By the mid-1980s, the avalanche of Australian diamonds will be pouring onto the market. Unless the resourceful managers of De Beers can find a way to gain control of the various sources of diamonds that will soon crowd the market, these sources may bring about the final collapse of world diamond prices. If they do, the diamond invention will disintegrate and be remembered only as a historical curiosity, as brilliant in its way as the glittering little stones it once made so valuable.